Turns Out, Even The Price of Beer Is Rigged

Everything is rigged. That’s what we have found out over the last two years. Stock markets, forex, interest rates, the price of gold, silver, oil, aluminum…. After battling that rigged world all day, you finally get home or rest your elbows on the bar of a watering hole, and all you want is chill out, go back to basics, and take that first big gulp of your favorite beer. It would heal the wounds of the day, and you’d feel good, knowing that it’s the one thing left in this world – something so fundamental to life that it goes back thousands of years – that hasn’t been rigged against you yet.

Or so you’d think. Turns out, in Germany, where beer belongs to the basics of life itself, the price of beer has been rigged for years. This time the perpetrators weren’t Deutsche Bank and Goldman Sachs or any of the usual suspects, but beer brewers. Not your small craft brewers, but large brewers, including subsidiaries of the largest global brewing mega-outfits in the world.

On Wednesday, the German Federal Cartel Office announced that it had concluded its investigation and proceedings into beer price fixing and had imposed fines of €338 million ($466 million) on 11 brewers that account for over half of Germany’s €7 billion in beer sales. It also hit a regional brewers’ association and 14 individuals. It was a two-step procedure: 6 brewers, 7 individuals, and €231.1 million in fines today; and 5 brewers, 7 individuals, and €106.5 million in fines in January.

The investigation proved, according to Cartel Office President Andreas Mundt, that the companies had entered into price-fixing agreements via personal and telephone contacts. In 2006 and 2008, they agreed on price increases for keg beer of €5 to €7 per hectoliter (1 hectoliter = 26.4 gallons). In 2008, they also agreed to raise the price of bottled beer by €1 per case.

Germans are a cynical bunch, and these sorts of shenanigans surprise no one, but the fact that it made their sacrosanct beer more expensive just as their real wages were being cut, along with benefits and pensions for the lucky ones, and unemployment compensation and other social payments for the unlucky ones, that didn’t sit well.

Beer is big business in Germany. In terms of global beer production in 2012 (the 2013 rankings haven’t come out yet), Germany ranked in fifth place with 94.6 million hectoliters. OK, fifth place is lousy for a country that prides itself in its beer culture – but hey, there aren’t that many people in Germany. The four leading countries all have much larger populations: China (490.2 million hectoliters), the US (229.3 million hectoliters), Brazil (132.8 million hectoliters), and Russia (97.4 million hectoliters).

In the early 70s, beer consumption in Germany peaked at 151 liters per capita, the highest in the world. Then it began a multi-decade decline that may finally be leveling off at 108 liters per capita. Enough for a second place in 2012, shared with Austria, and behind the Czechs, the undisputed world leaders with 144 liters per capita. In Germany’s wine regions, beer consumption is down to a scandalous 69 liters per capita. But Bavarians are still swilling beer at a respectable rate of 155 liters per capita.

“In view of the magnitude of these sales,” – the fined companies carve up amongst each other over half of Germany’s €7 billion beer market – “the high fines are appropriate and necessary to reach an effective punishment,” said Cartel Office President Mundt. He was pleased with the outcome. His message was clear: don’t rig the price of beer in Germany!

The sinners whacked on Wednesday: Carlsberg, Radeberger, Bolten, Erzquell, Bielstein Haas, Cölner Hofbräu Josef Früh, and Gaffel Becker. The brewers’ association of North-Rhine Westphalia also got hit. Due to their sales volume, Carlsberg and Radeberger were slapped with the largest fines, the Cartel Office said, though it didn’t reveal how much each company was fined. Radeberger and Bolten denied having colluded on fixing prices, and they’re scrambling to file appeals.

In January, the Cartel Office had whacked Bitburger, Krombacher, Veltins, Warsteiner, and Ernst Barre in the same case, but they – and AB InBev which had triggered the case – cooperated with the investigation to benefit from the “leniency program” and settled.

But the fines for years of wrong-doing, though they’re hefty, aren’t all that hefty in light of what could have been. The average price increase these brewers tried to impose on bottled and keg beer would amount to about €11 per hectoliter per year. If the Cartel Office hadn’t put a stop to it and brewers had been able to rig the price for all 94.6 million hectoliters of beer quaffed in Germany, the hapless drinkers would have had to pay over €1 billion per year more, year after year, which would have ruined the profound pleasure of a simple beer.